tv Titans at the Table Bloomberg April 5, 2015 11:30am-12:01pm EDT
betty: this is "titans at the table." we are taking you to the high seas to find out how one classic vacation industry is keeping up with the modern age. the cruise industry raked in more than $37 billion in revenue last year, setting sail with more than 21 million passengers. what does it take to be the biggest fish in the sea? we find out from the two biggest ceo's in the business. >> they want the biggest and the best. and this is the biggest and best cruiseship out there. betty: this is the ceo of royal caribbean. it earned more than $8 billion last year. to stay on top, his company has
spent $3 billion on new ships that have everything a person could want, and some things they could never expect. >> this is the next generation of cruise ships. we are constantly striving to move the bar higher and higher. betty: royal caribbean may have one of the biggest boats in the water, but the carnival ceo, arnold donald, says bigger is not always better, and it has the market share to prove it. arnold: we sell 80 million passenger cruise days a year. betty: carnival has 50% of all cruising business and pulled in nearly $16 billion last year, almost double royal caribbean. donald says that with 100 ships, that staying on top is about variety. >> we have nine brands, whether you are an adventurer or a quiet person. whether you are social or introvert, we have a brand. betty: the industry has made
huge gains since the last recession. but profit margins are still in the single digits. just as it was recovering, things like this started to hit the headlines. >> get the kids. go, go. >> it was an absolute disaster and made us never want to go on a cruiseship again. betty: the cruise industry has run aground on some very public disasters. from viral outbreaks that have ripped through ships in a matter of hours, to the devastating sinking of a ship nearly twice the size of the titanic, killing 32 people. the industry is facing a public relations nightmare that could keep passengers ashore. do these two captains of industry have what it takes to turn the ship around and sail back into double-digit profit margins? the answer may lie halfway around the world. it is all hands on deck on "titans at the table."
most americans remember the titanic as a movie. but beginning in the 19th century, giant ocean liners were the only way for the masses to cross the atlantic. starting in the 1960's, flying replaced cruising when jetliners took to the skies, rendering these giant seagoing vessels obsolete. not long after, the massive liners were reimagined for a different purpose. an ocean-bound getaway. the lumbering liners of old would be used more for recreation than transportation. and when the show the "love boat" became popular in the late 1970's, it helped transform floating vacations into a a giant growth industry. >> when it comes to services, we cover the bases from a to z. betty: but the success was not do just to bigger and better ships aimed at a ballooning population of american middle
class. by registering ships under foreign flags, like liberia or panama, companies avoided u.s. labor laws and environmental and tax regulations that regular land-based tourism were forced to follow. between 1970 and 2014, the passenger load grew more than 4000%, from 500,000 to more than 21 million cruisers each year. but the industry's environmental practices and working conditions have drawn a lot of scrutiny. and in the last several years, the industry has been plagued with a series of incidents that have hit the headlines and scared passengers and public alike. >> sick at sea. a royal caribbean cruise forced to turn back when 200 people on board get the norovirus. betty: from outbreaks on eight separate cruises last year to an ebola scare that created panic. on a carnival magic cruiseship.
>> we knew something bad was happening. betty: to the devastating crash of the costa concordia that killed 32 people and landed its captain in prison. and then there was the infamous "poop cruise." >> human waste was piling up outside their door. betty: when a power outage stranded 4000 passengers without food, water, or working toilets. >> days and days of misery. betty: that incident happened just months before carnival's ceo arnold donald took the helm. but as he told me, don't believe all the hype. arnold: 99.9999% of everyone that cruises has a great time. betty: and it doesn't make the headlines. arnold: the 99.9% does not make the headlines. how many times are people stuck on a runway in an airplane waiting to take off? how many times do they have a traffic jam that they are stuck in on a highway? those kinds of incidents -- the concordia, that was an accident and a tragedy, and that was more
serious, but it happens once in 100 years. betty: a relative newcomer, to the captain's chair, donald only became the ceo in 2013, appointed by the founding family of carnival. he is charting a new course for the biggest name in the industry. under the banner of the cruise line industry association, there are 62 cruise lines worldwide. servicing more than 21 million passengers, with big names like disney and norwegian joining carnival and royal caribbean. carnival is the largest with eight other brands, more than 120,000 employees across the world, and 10 million passengers last year, nearly half of the cruising population. that bigger market share also means a bigger spotlight when things go wrong. there's one professor who came out with statistics and found that between 2009 to 2013 there were 300 plus incidents on
cruiseships, whether very small or very large, the ones that make it onto national networks. so the perception that these are happening more and more on cruise lines and that there seems to be an epidemic of safety, how do you combat that? arnold: our guest satisfaction scores are through the roof. you were on a ship yourself, and you saw the excitement of the guests and how things work. it is just not true. you can do anything and have a one-off incident, but 80 million guests, that means 79 million plus are having the vacation of a lifetime. betty: whether these incidents are overblown, there is no denying it is what people are talking about it. according to the centers for disease control, ships sailing under the carnival flag were hit with 17 cases of norovirus in 2012. following the "poop cruise" on the carnival triumph, they make
sure those incidents never happen again. safety is not the only issue these days. the industry is also fighting the perception that only a certain type of person climbs aboard to cruise. so when i talk to people about going on a cruise, generally speaking, anecdotally, and not scientific, the perception is negative of the cruising industry, that it is for senior citizens, that younger people don't go on cruises, or they have read about the triumph or read about the costa concordia. how do you change that perception? arnold: that is a challenge. we have maybe 3.5% of the vacation-going population that cruises in a year. the reality is that people who cruise and have cruised, love it. people say, i am going to get seasick or it is too crowded.
all of these negative things that really don't exist. betty: when we come back, arnold donald takes me on a tour to show me why carnival is the king of cruising. later, richard fain of royal caribbean. he pulls out all the stops on their latest ship. he's out to prove that in order to pull ahead, it's go big or go home. richard: they want the biggest and the best, and this is the biggest and best ship out there. ♪
betty: have you been on every single one of your 101 ships? arnold: no, but i have been on quite a few. betty: when you walk onto one of carnivals fun ships, you notice are the amusement style attractions, like a county fair on water. after you dry off, it's time to take in some extravagant, vegas-style entertainment. ♪ ♪ >> put your love to the test betty: and then it is off to a meal fit for a queen or king. and you can burn the calories off all in the same place. arnold: we have personal trainers that consult, also dietitians. betty: donald and i walked the decks to the luxurious spa.
arnold: the spa is my favorite place on the ship. betty: to some of their nighttime hotspots, where he showed me some of his signature dance moves. [laughter] betty: but for all the amenities aboard, he says that when it comes to cruising, there is no one-size-fits-all ship. arnold: a cruise is not a cruise is not a cruise. every brand has a different type of cruising experience, and there's a reason for that. because we are all different. some people want lots of partying, water parks, excitement, lots of kids around, families around. others want to relax and be with their immediate close ones. so you have to have different types of offerings for people. if you get on the right cruise, you will love it. betty: with over 100 vessels, carnival has a different ship for just about whatever floats your boat. its business model has helped carnival dominate the sea, but
not far behind is royal caribbean ceo richard fain. he says he has a boat that is so big, it has it all, making it hard to feel trapped at sea. richard: if you are seeing about a cruiseship, and it has surfing onboard, skydiving onboard, and bumper cars and 18 places to eat, it's hard to say that i'm going to feel confined. betty: with five million passengers, royal caribbean is the number two player. earning more than $8 billion in revenue last year, richard fain is determined to close the gap on the competition, and to do that, he is going to need a bigger boat. it is called the quantum of the seas. what were customers demanding? richard: we really felt that people wanted more choice. they did not want a regimented vacation and want to have more choices to pick from. we wanted to provide something where the entertainment just gave them a plethora of activities to do.
the food selection, they could choose any kind of foods whenever they wanted it. and so i would say that probably the biggest change is the level of choice the ship offers. we have this new dynamic dining -- betty: richard took me on a tour to show me firsthand what kind of vessel $1 billion buys you. at over 1000-feet long with the ability to sail with nearly 5000 passengers, it's one of the largest cruiseships on water. we are how many stories up? richard: almost 30 stories up. betty: first stop, the north star observation pod richard: it is just looking down. this is a perspective you never get to see. and out comes the camera. this proves my point. betty: it does. this is amazing. at the very highest, we were above the statue of liberty. 300 feet out over the water. richard: it's really cool. betty: that's incredible. the northstar is just the first attraction on a boat that has everything you can think of.
and then some. here we go. i want my lucky number eight. i'm taking this one. bumper cars might be the last thing you would expect to see on a cruiseship. here on the quantum of the seas it somehow feels right at home. and if being at sea is not enough for you, this boat has a way of getting you airborne. >> am i ready for this or what? richard: the best job in the world. betty: there is the requisite high-end shopping. richard: we have cartier. betty: and of course, fine dining. can i sample something? with 18 restaurants to choose from. but the real experience is not
just the cuisine, it's how you get to it. richard: this is what we call royal iq, dynamic dining. betty: these are all the restaurants? richard: yes, it's too many for a page. if you want to reserve space, for example, just hit reserve and it comes up and asks you how many want and when you want it. betty: you can do this on your mobile phone. technology is part of what makes royal caribbean stand apart from the competition. dynamic dining is the tip of the iceberg. richard: we even track your bags. so you can look on your iphone and say that my suitcase is in the elevator or it is in the hallway or it is going through security. and these kinds of capabilities, i think, are things that we probably will all look back on in a very short period and say, can you imagine what this was like before quantum of the seas? betty: for all the over-the-top attractions offered by quantum
of the seas, is dropping a billion dollars on a single ship the key to raising profit? carnival ceo arnold donald is not convinced. arnold: there will be a lot of people who will not want to sail on quantum. that's not how they want to -- they are not looking for an amusement park experience. that's not how they want to spend their time. betty: you don't see it as a game-changer. arnold: i see it as a game-changer in certain features on board a ship. but in terms of a game-changer for the industry, every new ship is a game-changer. quantum, in the contemporary category, where people are looking for lots of activities and that kind of stuff, a mall of america type of experience. it is a game-changer for that type of experience. betty: arnold called quantum of the seas the mall of america of ships. richard: i am not going to
comment on what he said. but i think you will have trouble finding a mall onboard. betty: the one thing both ceo's believe, the incidents that cast a shadow over the industry are a thing of the past, and the bargain ticket that convinced passengers to set sail, currently at discounts of almost 80%, may go away. richard: the discounting due to those kind of negative incidences was serious, and i think we are now moving very quickly away from that. so i think you will see a lot less discounting. and in fact, i think our focus needs to be not on offering the cheapest cruise. and if you look around, you will see why it does not make sense for us to try to sell the cheapest cruise, but the best cruise. in fact, one of the other things is we are saying that as we get into 2015, past the first quarter, quite a solid year. we are seeing the opportunity to raise our prices, even if it
means, in some cases, that we sail with some empty staterooms. arnold: i would say book as soon as you can. the probability that prices will go lower are not very high. but they don't need to. higher prices in the cruise industry will still make it the best vacation value by far versus a land-based vacation. betty: are you willing to give up a little market share to keep your prices above the discounted rates? arnold: it's not so much market share. the question is occupancy. betty: ok. arnold: how many cabins are left unfilled, or how many cabins have one guest versus three or four guests. that kind of thing. we are absolutely willing to trade off occupancy to get the price up from a business standpoint. betty: coming up, there is one demographic that both companies have a hard time cracking, millennials. they may be the key to sailing towards higher profits. later, it is full speed ahead to
a place that may just push the entire industry into bold new waters. ♪ betty: this is shiprock, it is norwegian cruise lines solution to younger cruisers. millennials on the whole have a lot of money to spend. $1.3 trillion of it. and a piece of that demographic could help the industry sail back into double-digit profit
margins. the cruising industry history group came out with numbers say that the average cruiser is about 50 years old, makes over $100,000, white, and generally an affluent traveler, but they are essentially that demographic. it's not very diverse. richard: well, again, that is part of what we need to help explain, because the diversity is growing dramatically, both in ethnicity, in age. betty: some of the reports say that the reason why it is such a game-changer, or at least something that people are excited about, is that it's catering towards the millennials, the younger travelers. so is this an attempt to essentially, a very big attempt, to get to 20-year-olds and 30-year-olds on your ship? richard: it is absolutely
directed to expanding our market. the millennials are a prime market for us, and a growing one. betty: royal caribbean has managed to tackle the one thing almost every millennial wants, which no surprise happens to be one of the hardest things to do on the water, providing wi-fi. richard: bandwidth on this ship is 450 times the next best ship. betty: wow. richard: in fact, the bandwidth on the ship is better than the combined bandwidth of every other cruiseship in the world. betty: according to arnold donald, the millennial, as you might expect, defies stereotypes, and providing wi-fi is far from the only magical bullet to get them to cruise more. arnold: millennials all over the place are like every other generation. some millennials like heavy social exchange and interaction, in terms of parties. some like doing it on the internet.
some want more private time. a lot of them are adventure seekers. a lot of them want to give back. they like impact travel, travel where they can go do something and help a local community or help an individual. betty: do you even need to get millennials cruising more? is that a misperception of the industry? arnold: it is a little bit of a misperception. in our brand, families cruise. we have weddings on our ships, and those are often young people getting married and they have chosen a cruise as their honeymoon experience but their wedding reception experience. so we have millennials on our ships around the world. betty: but the cruising industry does not live and die by getting millennials on their cruise. arnold: it does not live or die i it, but you want to build your base for the future. betty: still to come, the one destination that every cruising company is ready to court. how big is china going to be?
arnold: eventually, it will be the largest cruise market in the world. ♪ betty: the cruising industry has built its success in the west, but halfway around the world, there is another market on the horizon that could change the game completely. richard: the demographic shift in china going into the growth of the middle class is one of the biggest single demographic explosions in history. one of the big demographic shifts we have gone through has been the baby boomer generation. it has been an enormous and that bubble has dictated a lot of american industry.
what's happening in china today makes that look insignificant. betty: royal caribbean ceo richard fain says that in a few years, the middle class in china will not only be bigger than the middle class in america, but bigger than america. consumer spending in china is expected to increase of about 7% every year. by 2020, the total could be $5.7 trillion. remember the quantum of the seas, the ship with every bell and whistle you can think of? it is setting sail to its new home port of shanghai. one big advantage of expanding in china, not having to deal with the stodgy old images of a typical cruiser. in china, the cruise liners can start with a clean slate. richard: this whole concept is just something new and exciting. there is no old-fashioned myths about cruising. there is none of this cruising is for old people. if you are a family traveler,
both can enjoy it together. how many vacations can you have where a 70-year-old and a 20-year-old can go together and both rave about it? so we have that, and it is extraordinary. there are not many places you can do that. china, the family bond is stronger than in the western world. so the ability to offer multi-generational traveling in china is even more valuable. betty: carnival ceo arnold donald has no intention of being left in royal caribbean's wake when it comes to china. he says it is a market that they have already had both feet in since 2006. arnold: keep in mind, we have 101 ships, and we sail to over 700 ports in the world every year. we source from everywhere. we have four ships home ported in china, four in shanghai. betty: carnival carries chinese passengers to japan and south korea.
last year, donald put his chief operating officer in shanghai and signed a deal to develop the cruise industry with a local operator, china merchants group. arnold: there is a lot of work to be done in china. we have to have ports developed so the chinese have destinations to go to. but the reality is that it a good market already today. we have four ships there. three on our castle line, one on our princess line. both brands are profitable. the chinese government has declared, through their five-year economic plan, their intention to develop the cruise industry. so that means a lot of things will happen relatively quickly. we want to be there to help make it happen in a way that we think will help the chinese government establish the cruise industry they want, that will be sustainable for years to come. betty: how often are you there now? arnold: i have been on the job a year and a half or so and have made five trips to china. it's a very active market under
development. it will take some time. we are very happy with what we have today. but we see it someday being as large as any cruise market in the world. betty: donald says carnival is focusing on one thing the chinese can never get enough of, luxury shopping. arnold: the chinese guests, they really like high-end retail, big brand names, luxury brands. betty: they want louis vuitton, prada. arnold: they really like high-end stuff, and so we have to reconfigure our retail there for the very high end. so each ship is different. a lot of americans are shoppers. and they want great quality and really great prices. they are not as hung up in general on big luxury brands. for example, on the carnival brand, but others would be. betty: is there one brand that you would like to get on board that you haven't gotten yet? arnold: in terms of a retail brand? i would love to get bentley,
rolls-royce automobiles. if we could sell a couple automobiles onboard, that would be nice. betty: that would be nice, a big ticket item. whether it is the promise of the emerging chinese market or the appeal of ushering in the next generation of millennial cruisers, these two titans are laying it all on the line, and moving ahead to shake off the negative news of the past. royal caribbean's flagship vessel, quantum of the seas, won't be top dog for long. in 2016, they're rolling out a bigger, better, bolder cruiseship, the harmony of the seas. with the ability to carry more than 5000 passengers, it will be the largest cruiseship on the ocean. four carnival ceo arnold donald, he is pulling out all the stops with carnival's vista next year. his goal is to see the rest of the world climb aboard. arnold: cruising is the greatest
ryan chilcote: what began in crimea is now playing out in eastern ukraine. this is utter destruction. i mean, i have been in demolition sites, war zones. i have never seen anything like this. but the outcome here is far less certain. we are going to stay low because we just heard a burst of gunfire. war has returned to europe. right on the outskirts of donetsk, and as you can hear, there is a significant battle underway. it is west versus east. and it is slav versus slav. we have come to the front lines and gone into the mines. this is not a good place to go if you are claustrophobic.